The money you need to start or grow a business is often hard to come by if you have bad credit. Having bad credit can make it harder to get traditional loans, but it doesn't mean you have no other choices. By taking a few smart steps, many business owners with bad credit are able to get the loans they need.
Here are some tips on how to get a business loan even if you have bad credit.
1. Learn about your credit.
Understand your situation completely before you apply for any kind of loan. Check with Equifax, Experian, or TransUnion to get a copy of your credit report. What to look for:
• Errors that can be argued over and fixed
• Collections or accounts that are past due
• Your rate of credit use
Knowing what lenders will see on your credit report and what you might need to explain or fix is important.
2. Look at other lenders.
The credit requirements at traditional banks are often the strictest. Luckily, alternative lenders give you more choices, such as:
• Finance companies online like Fundbox, BlueVine, and OnDeck
• Small loan companies like Kiva and Accion
• Platforms for peer-to-peer lending
• Financial Institutions for Community Development
Rather than just looking at your credit score, these lenders will often look at how well your business is doing and how much cash it brings in.
3. Consider collateral or secured loans.
There is a way to get a secured business loan if you are ready to put up assets like real estate, equipment, or inventory. These loans make it less risky for the lender, so even if you have bad credit, you're more likely to be approved.
Just keep in mind that the lender can take the collateral if you don't pay back the loan.
4. Suggest a co-signer or personal guarantee
You might get a loan from some lenders if you:
• Sign a personal guarantee saying you will pay back the loan with your own money if the business can't.
• Get a co-signer with good credit who is willing to pay the loan if you don't.
This gives the lender more peace of mind and increases your chances of getting approved.
5. Make an excellent business plan.
An applicant's credit score tells lenders about their past money problems, but a business plan tells them about their plans for the future. Include:
• Projections for money
• How to make money
• Doing market research
How the loan will be capitalized to make money
Giving lenders a compelling business plan can help them see you as a good risk.
6. Enhance Other Financial Signs
Banks may give you a loan even if you have bad credit if you:
• A lot of cash flow
• Consistent annual income
• Bank statements that look good
• A list of payments made on time to vendors or suppliers
Make sure that the financials for your business are clean, well-organized, and up-to-date.
7. Make your first loan or short-term choice smaller.
Think about these options before applying for a big, long-term loan:
• business loans for a short time
• Payment terms for bills
• Payday loans for merchants
Most of the time, these products have less strict requirements, and if you pay them on time, they can help you build your credit.
8. Slowly work on making your credit better.
As soon as you get a loan, you should start working on your credit so it's easier and cheaper to borrow money in the future. These things are possible:
• Reduce your debt
• On-time payments
• Avoid using too much credit.
• Not too many new accounts should be opened at once.
Conclusion
Although it is hard, it is not impossible to get a business loan even if you have bad credit. You can get the money your business needs to grow if you keep at it, have the right plan, and do some smart money management. Remember that every time you pay your bills on time and make a good financial choice, you move toward better credit and more opportunities.
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Frequently Asked Questions (FAQ)
1. Are loans for small businesses possible if my credit score is less than 600?
If your credit score is less than 600, you can still get a loan from some online and community lenders. Other things that these lenders often look at are the business's income, cash flow, and length of time in business.
2. How low of a credit score do I need to get a business loan?
Scores of 680 or higher may be needed by large banks. A lot of online lenders, especially those who offer short-term loans or merchant cash advances, will accept scores as low as 500, though.
3. Getting a lot of loans will hurt my credit.
Yes, every hard credit inquiry can make your score go down by a small amount. Use lenders that offer prequalification with a soft credit pull first to avoid this.
4. Does the government have any programs that can help businesses that have bad credit?
An SBA loan isn't available to businesses with bad credit directly, but some lenders approved by the SBA are more willing to work with them. Community Development Financial Institutions (CDFIs) may also work with people who have bad credit.
5. I have no credit history, can I still get a loan?
It's possible. Your business's cash flow, how much money it makes, and how long it's been open may affect the lenders' decision. Some loans require a co-signer or collateral.
6. What kinds of loans are best for people with bad credit?
Bill financing
Cash advances for merchants
Short-term loans for businesses
Secured loans for businesses
These types of loans usually have less strict credit requirements, but they may have higher fees or interest rates.
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7. What can I do to improve my chances of being approved?
Give correct and up-to-date financials
Provide collateral or a personal guarantee.
Look for lenders who offer bad credit business loans.
Make an excellent business plan.
8. What are the chances of getting a loan when you have bad credit?
People with bad credit usually have to pay back loans faster and with higher interest rates. You could hurt your credit even more by missing payments, or you could lose the collateral you held on to.
